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Last year, the government extracted $1.1 trillion in taxes from
us more or less hardworking individual taxpayers. But now it will
pay, along with the states, $429 million of our taxes to
the coolest Silicon-Valley beauty queen: Facebook.

Timing was a bit inconvenient, however. The “sequester,” as the
automatic spending cuts by the government have been elegantly
named, is scheduled to kick in on March 1.

So, as the drama with all its lurid theatrics was playing out in
Washington, Facebook filed its first 10-K annual report with the SEC,
containing its financial statements for 2012 along with a host of
small-print footnotes which presumably no one would ever look at.
But the recalcitrant nonpartisan research and advocacy group,
Citizens for Tax Justice, combed through it anyway.

And it found “an amazing admission”: despite $1.1 billion in
pre-tax profits from its US operations in 2012, Facebook didn’t
pay any federal or state income taxes in the US—in fact
it will collect net tax refunds totaling $429 million.

Facebook is relying on a single tax break in our glorious
corporate tax-dodge code to obtain its negative tax rate: the
deductibility of executive and employee stock options. It cut
Facebook’s federal and state income taxes by $1.03 billion last
year—but that was just part of it.

As Facebook said in its footnote under “Share-based
Compensation,” on page 68 of the 10-K: “during the years ended
December 31, 2012, 2011, and 2010, we realized tax benefits from
share-based award activity of $1.03 billion, $433 million, and
$115 million respectively.”

Another $2.17 billion of this US tax break is carried
forward. To rub it in, COO Sheryl
Sandberg giddily pointed out during the earnings call that the company “ended the year
with a total of $5.8 billion in NOL tax loss carry forwards
created by stock compensation”—to be used in future years.

Given Facebook’s anemic “profits” in the US, it’s unlikely that
it will have to pay federal or state income taxes anytime soon.
Instead, taxpayers will have to continue showering tax refunds on
what has become the cutest, coolest welfare queen of them all
[but it does have its share of not-so-real-world issues,
like this one: Is The “Self-Promotion-And-Envy Spiral” Taking
Down Facebook?].

On its financial statements, Facebook claimed that it had a
federal tax liability in 2012 of $559 million, that it would
somehow pay $559 million in taxes in the coming year. But the
number was wiped out by its infamous footnote on page 68 of the
10-K. And suddenly, that “federal tax liability” of $559 million
had, like so many things on financial statements, no graspable
relationship to reality.

Facebook isn’t the only one sucking on the big government teat.
The tax break is available to all companies where stock-based
compensation plays a big role. And innumerable other tax breaks
are available as well. In its Corporate Tax Dodgers report of November 2011,
the CTJ found that 30 of the 280 most “profitable” companies for
the tax years 2008-2010 paid no income taxes but instead
collected net tax refunds on their combined pre-tax
profits of $160 billion! And 78 of them had at least one
year when they didn’t pay taxes. At the same time, other
companies in the study were getting whacked by huge tax bills.
Hence the inherent unfairness of the corporate tax-dodge code.

So, CEO Mark
Zuckerberg was raving about the limitless opportunities of
mobile during the earnings call. “We have more engagements from
the people who we reach, and I think we’ll also be able to make
more money for each minute people spend with us on their mobile
devices,” he said. But it just won’t contribute to the convoluted
and painful process of reducing the US budget deficit.

Meanwhile, corporate insiders rotate in and out of various
government agencies that are supposed to regulate them. Perhaps
the most egregious example is the SEC, where Wall Street culture
and personalities have come to dominate. Regulation and
enforcement have become a joke. A principle so common that it has
a name: “Regulatory Capture.” Read.... Wall Street Takes Over Its Regulator